GTS's Sale of Microwave Network to TMX Group to BroadenAccess to Ultra-Fast Data

Microwave data networks are going mainstream, and will level the playing field for all investors to access critical market data, said CEO of GTS, which entered a deal to sell StrikeNet to TMX Group.

Proprietary trading firms have gone to extreme lengths to access the fastest market data, even building their own microwave networks. But now, the technology arm of proprietary trading firm is selling its microwave data network to an exchange group.

The move comes after several months of heated debate about US equity market fairness and high-frequency traders having access to the fastest direct data feeds from exchanges to trade ahead of ordinary investors receiving slower feeds.

Market participants need equal access to the fastest and most accurate data, argues Ari Rubenstein, co-founder and chief executive officer of Global Trading Systems. "At a time when concerns are swirling about market fairness and transparency, the time is right for a breakthrough that levels the playing field," he said.

"Transmitting information over microwaves is much more efficient, you can get closer to the theoretical speed of light than over fiber," said Rubenstein in an interview.

Through the sale to TMX Group, a broad customer base of TMX Atrium will gain access to the microwave technology, and the company will commercialize it further. "It's the logical stage for the commercial business," said Rubenstein, who also operates a proprietary trading business.

GTS operates through its subsidiary, GTS Securities LLC, an automated market maker in thousands of securities including US equities, ETFs, commodities, financial futures, and US cash Treasuries and rates products.

Many critics have said that only professionals have access to sending and receiving critical market data. "One of our incentives was to make sure this technology will be delivered to individual investors," said Rubenstein. "We're closing this transaction that is really game changing by bringing this technology to exchanges."

TMX is the first exchange operator in North America that is going to own microwave technology, he emphasized. "Now for the first time, microwave is going to be run by an exchange, a regulated entity and offered equally for the first time ever," he said.

"Microwave technology is now becoming mainstream for all investors -- retail and institutional," said Rubenstein. "This is going to level the playing field for all investors for all participants to gain access to critical market information."

"The microwave offering was conceived four years ago as a way to democratize the market and level the playing field for retail and institutional investors by building technology that could transmit data much more efficiently than fiber," he said.

The microwave network was developed in part for CME and Nasdaq OMX allowing them to transmit record fast feeds to their customers. Both exchanges use StrikeNet to transmit ultra-low latency data feeds to customers between their key North American data centers in Chicago and Cartaret, NJ.

GTS is a solutions provider and technology R&D company through its Strike Technologies unit, which offers commercial solutions including a pre-and-post trade risk management system. Strikes customers include the world's largest securities/derivatives exchanges, investment banks and trading firms.

Any firm can be a customer of StrikeNet under TMX Atrium including retail brokers, professional banks and proprietary trading firms. While before these microwave networks used to be owned by one firm, now an exchange can distribute it.

GTS Securities, its proprietary trading firm, will continue to be a client of StrikeNet after the sale to TMX Group.

Rubenstein predicts that more exchanges are going to embrace microwave technology in addition to telecom companies that cater to the financial industry. Traditionally, it's been through partnerships and other arrangements that exchanges become customers of microwave providers. "It's different when you are an owner and operators you can really control the destiny of the product," said Rubenstein. "TMX realized that this microwave technology is going to become ubiquitous and wanted to own it."

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Only the more sophisticated retail traders would want to use microwave data networks. Active traders and professional day traders could build those programs or utiize third parties such as TradeStation and tools provided by Fidelity, TD Ameritrade, Schwab, E*Trade, TradeMonster, among others. But they would also need colocation of their trading algos in data centers to compete.

I think it's more likely that microwave data feeds would be sold to retail brokerage firms who could use it to execute retail orders. It remains to be seen if there is a market for this among retail firms. It could be offered but no one bites.

That makes sense and it does show that anyone could have access to the data.

Having access to high-speed data is only part of a low latency trading strategy. A retail investor would still need to build a trading program that could interpret the data in real time. Obviously, only a few retail investors have those skills.

Retail investors could subscribe to the microwave data feed once StrikeNet is sold to TMX. This would most likely be sold to retail brokers which would distribute the feed to their customers- i.e., active traders. I personally can't imagine a retail investor needing the speed of light. But from a political perspective, I think that GTS is taking this step to make a statement that microwave speed is being democratized and made available to average investors, so therefore, high frequency traders no longer have an information or speed advantage. By making microwave available to everyone, whether they need it or not, shows that it is broadly available. I do think this will spread internationally through the broad distribution capability of TMX Atrium to other markets.